Citicorp has agreed to buy the electronic benefits transfer business of a competitor, Transactive Corp.
Citibank EBT Services, the biggest company in the business of converting welfare checks, food stamps, and other benefit payments to electronic form, agreed to pay $11.5 million to take over Transactive contracts in Indiana, Illinois, Texas, and Sacramento County, Calif..
The new contracts, expected to be fully transferred by November, will make the Chicago-based Citicorp unit the primary electronic benefits transfer vendor in 33 states. The rest contract with Deluxe Corp., a handful of other vendors, or have yet to choose.
By 2002, all federally funded benefits administered by the states will be delivered electronically, joining those administered by the federal government, which must be electronic by 1999.
Transactive, an Austin, Tex.-based subsidiary of Gtech, the leading provider of state lottery systems, will not bid on future EBT contracts. For transition purposes, Transactive will subcontract services to Citicorp for six months.
Citibank's growing dominance in the field is raising concern among some state officials.
"Where is the competition?" said Raymond McCabe, Massachusetts' EBT coordinator. "Where is our ability to negotiate with these guys?"
Rosemary Thomas, Maryland's project director, said she regretted Transactive's decision. "What I consider an oligopoly to begin with has just lost another player," she said.
Maryland's contract with Deluxe will be up for renewal in 1999.
On the other hand, Melba Price, associate director for policy coordination at Missouri's Department of Social Services, which works with Citibank, said she did not feel beholden to one company.
"There are always interested parties," said Ms. Price. "I would anticipate future bids would have multiple bidders."
Citibank views the acquisition as "an opportunity to add to our debit card program," said Amy Dates, a spokeswoman.
"There shouldn't be any impact on the recipients," she said. "They will have the same cards and same phone numbers."
Transactive, a four-year-old company, had been losing money and seeking a buyer for its EBT contracts since last year.
Transactive's state and county clients must approve the contract transfers.
Transactive told them in a letter that its decision was "economically driven." Company spokesman Marc Palazzo said EBT was not seen as a core business.
On Friday, Gtech announced it would lay off 800 employees, 12 of them from Transactive.
"They have told us their key people will stay intact," said Carl McPherson, EBT deputy project director for Illinois, which is scheduled to start rolling out its program on June 1. "The only thing we can do is take them on their word."
Transactive will continue to provide benefit identification cards in New York State, electronic payment file transfer services in New York City, and hunting, fishing, and recreational licenses in Texas.